Liberty Mut. Ins. Co. v. Commissioner of Ins.
| Decision Date | 17 July 1974 |
| Citation | 313 N.E.2d 897,366 Mass. 35 |
| Parties | LIBERTY MUTUAL INSURANCE COMPANY et al. v. COMMISSIONER OF INSURANCE. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Acheson H. Callaghan, Jr., Boston (Jeffrey Swope, Boston, with him), for Liberty Mutual Ins. Co. and others.
James P. Kiernan, Asst. Atty. Gen., for the Commissioner of Insurance.
Sanford A. Kowal, Boston (Walter P. Muther, Boston, with him), for intervener, Associated Industries of Massachusetts.
Before TAURO, C.J., and BRAUCHER, HENNESSEY and KAPLAN, JJ.
Massachusetts Workmen's Compensation Rating and Inspection Bureau (Bureau) under G.L. c. 152, § 52, filed with the Commissioner of Insurance (Commissioner) revised workmen's compensation insurance rates to be effective on February 1, 1973. The filing followed a traditional method, used and approved for many years, in using expense data for 'non-participating stock companies' to determine 'manual rates' to be used by all insurers. After hearing, the Commissioner disapproved the filing on the ground that 'the allowance for expenses . . . will be excessive for participating stock carriers and mutual carriers.' The Bureau and numerous insurers sought judicial review, and a single justice of this court reserved and reported the case without decision. We direct the entry of a decree affirming the Commissioner's disapproval.
The Bureau is a voluntary unincorporated association licensed by the Commissioner as a rating organization under G.L. c. 152, § 52C. All companies writing workmen's compensation insurance in the Commonwealth-178 in 1972-are members or subscribers of the Bureau, and they authorized it to make the filing in question. The filing was made on December 15, 1972, and after lengthy hearings the Commissioner made his decision on June 1, 1973, disapproving the filing. A petition for review was filed on June 21, 1973, by the Bureau and twenty corporate insurers, including mutual companies, participating stock companies, and nonparticipating stock companies, as representatives of all 178 insurers. Boston Shipping Association and Associated Industries of Massachusetts (AIM) participated in the hearings and by stipulation were allowed to intervene in the review proceeding.
1. Aggrieved parties. The Commissioner contends that the Bureau is not a 'party aggrieved,' entitled to petition for review of the Commissioner's opinion under G.L. c. 152, § 52, and AIM contends that no one else is a 'party aggrieved.' No contention is now made that the Bureau, as an unincorporated association, lacks capacity to sue. Taken together, the contentions of the Commissioner and AIM are obviously without merit and need not detain us long. We reject both contentions.
The Bureau, as 'a rating organization licensed under section fifty-two C,' was authorized by its members and subscribers to make the filing on their behalf. As an authorized rating organization, it properly participated in the proceedings before the Commissioner, and in similar cases no objection has been made to the participation of similar rating organizations in judicial review. Insurance Rating Bd. v. Commissioner of Ins., 358 Mass. 171, 172, 260 N.E.2d 922 (1970). Aetna Cas. & Sur. Co. v. Commissioner of Ins., 358 Mass. 272, 273, 263 N.E.2d 698 (1970). If as an unincorporated association it lacked capacity to seek judicial review, a question on which we express no opinion, it could do so in the form of a petition by one or more of its members and subscribers on behalf of the others, as was done in this case. Insurance Rating Bd. v. Commissioner of Ins., 359 Mass. 111, 112-113, 268 N.E.2d 144 (1971). Compare McCormack v. Labor Relations Commn., 358 Mass. 682, 684-685, 266 N.E.2d 651 (1971); Mass.R.Civ.P. Rule 23.2, effective July 1, 1974, -- Mass. --. Each company which authorized the filing was 'the company' authorized to seek judicial review by G.L. c. 152, § 52. See Westland Housing Corp. v. Commissioner of Ins., 352 Mass. 374, 382, 225 N.E.2d 782 (1967). If any of these parties had lacked 'standing,' we should have been inclined to allow them to intervene or to argue as friends of the court. Compare Cambridge Elec. Light Co. v. Department of Pub. Util., -- Mass. --, --, a 295 N.E.2d 876 (1973).
2. Authority for judicial review. There seems to be some dispute whether this proceeding is subject to G.L. c. 152, § 52F(c), applicable to orders or decisions under the authority of §§ 52C-52F, as well as to § 52. The Commissioner may have caused the confusion. On its face his opinion simply disapproves a rate filing under § 52 and does not expressly make any order or decision under §§ 52C-52F, but it concludes by stating that review may be had under 'provisions of G.L. c. 152, Sec. 52 and Sec. 52F.' Since no party suggests that this question can affect the outcome in any way, we express no opinion on it. Compare Associated Indus. of Mass. v. Commissioner of Ins., 356 Mass. 279, 285-286, 249 N.E.2d 593 (1969).
3. The 'traditional method.' According to the Commissioner, the Bureau determined the proposed rates by actuarial procedures which are essentially the same as have been used in Massachusetts for a number of years. Those procedures are complex, but we are primarily concerned only with one component, the 'expense multiplier,' designed to show 'how much the otherwise adjusted loss costs expected have to be increased to produce the expense and profit need calculated.' In this case the Bureau determined that 28.9% of premium was needed for expense other than 'loss adjustment expense,' and allowed 2.5% of premium for 'profit and contingencies.' The data relied on, according to the Commissioner, were reliable, but this does not imply that they have in all respects been properly used.
The allowance for expenses, in accordance with traditional practice, was based on the expected expense needs of nonparticipating stock companies. The expense experience of participating stock companies and mutual companies was different. For example, countrywide average figures for 1971 show that, for participating stock companies and mutual companies, expenses as a percentage of net premiums earned were materially less than those of nonparticipating stock companies, primarily because commission and brokerage expense was less. Countrywide commission and brokerage expense for 1971, as a percentage of net premiums earned, was as follows:
Nonparticipating stock companies 9.5%
Participating stock companies 5.2%
Mutual companies 1.8%
It is not disputed that the reason is that stock companies sell insurance through agents more than mutual companies, which to a greater extent sell through employees.
It is stipulated that the Bureau was organized in 1915, that it has always filed a single set of manual rates on behalf of all its members and subscribers, and that successive commissioners have approved one set of manual rates for all members and subscribers of the Bureau. Since 1947 no decision of a commissioner has directly considered or addressed itself to the question of using the expense experience of nonparticipating stock companies as a basis for rates of other companies. The differentials in countrywide expense ratios between nonparticipating stock companies and mutual companies and between nonparticipating stock companies and participating stock companies have always existed, although the size of the differentials has varied from year to year. The reported expense ratios of individual companies may vary from the countrywide averages.
The companies with lower expense needs pay dividends to policyholders. Indeed, since some groups of companies are classified as nonparticipating stock companies but include participating companies, ratios of dividends to policyholders as a percentage of net premiums earned are reported for all three categories. It is stipulated that the data for 1971 are representative of the dividends paid in recent years on workmen's compensation insurance in Massachusetts. The 1971 dividend ratios are as follows:
Nonparticipating stock companies 3.4%
Participating stock companies 13.9%
Mutual companies 13.8%
The actual cost of insurance to the insured employer may be affected not only by dividends but also by premium discounts, additional premium charges, experience rating, and retrospective rating plans. The Commissioner has no authority to require companies to pay dividends, but he does approve the other modifications. Risks which develop less than $500 of annual premium are subject to additional premium charges. Risks which develop more than $750 of annual premium are subject to experience rating. Risks which develop more than $1,000 of annual premium are subject to graduated premium discounts which are greater for stock companies than for mutual companies. Thus only a small fraction of all premiums are determined simply by applying 'manual rates.'
4. The Commissioner's decision. The Commissioner said that the traditional actuarial procedures His duty, he said, is to approve for 'any company' classifications and rates that are 'not excessive, inadequate or unfairly discriminatory for the risks to which they . . . apply,' quoting G.L. c. 152, § 52. He quoted § 52C(f)(2), 1 authorizing the Bureau to use differing systems of expense provisions to reflect the requirements of the operating methods of a particular insurer or group of insurers, and said, 'What the statute authorizes may be legally required in circumstances such as these where the evidence admittedly discloses that the proposed manual rates will be excessive for some insurers.'
The Commissioner rejected the argument that allowances for fictitious expenses are offset by dividends, stating that ...
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